Tech

H-P grabbing Palm could shake up PC alliances

Computer giant's move seen as blow to Microsoft's Windows Mobile

By

BenjaminPimentel

SAN FRANCISCO (MarketWatch) -- Hewlett-Packard's bid to gobble up Palm Inc. could shake up alliances in the personal computer industry, as other players in the sector figure out their play in a rapidly-changing smartphone arena, analysts say.

One analyst sees Dell
DELL
H-P's archrival in PCs, forging a tighter alliance with Microsoft
MSFT, -2.19%
for whom the Palm deal is considered a slap in the face by its longtime partner.

By grabbing Palm, analysts see H-P aggressively taking on the smartphone market -- but without the shackles that came with its partnership with Microsoft in the PC market, an arena the Silicon Valley icon dominates.

Todd Bradley, head of H-P's personal systems group, in the call announcing the deal, affirmed the company's relationship with Microsoft. The software behemoth also said in a statement reacting to the Palm deal that "H-P is a strategic partner and will continue to be so with Microsoft."

But some analysts see the merger changing the relationship, even as it triggers realignments in the broader technology market.

"H-P is basically saying that the same thing that happened to us in PCs, we're not interested in happening in the mobile space," IDC analyst Crawford Del Prete said in an interview.

"This is a shot right on the side of Microsoft," he added. "I don't think it will change the dynamics of their PC business, but it changes the dynamics of the mobile business and creates some tension."

Problem for Windows Mobile?

Analyst Roger Kay of Endpoint Technologies Associates agreed: "Windows Mobile, I would say, has taken a body blow."

"You can assume H-P will slowly ramp down its Windows Mobile efforts and if that platform loses critical mass, then you have some large players who are committed to it ending up being left out in the cold," he said.

In fact, the Palm deal highlights the now more limited choices for other PC makers, which are trying to catch up with other players in the smartphone market where the likes of Apple Inc.
AAPL, -1.58%
and Research In Motion
RIMM
are the dominant competitors.

Meanwhile, he added, Dell also began selling Android-based smartphones in China and Brazil. Even Acer is offering Android and Windows-based smartphones in Asia and Europe, he added.

Moorjani said the "key difference between H-P's strategy and the other PC makers is that H-P is not just throwing out another device in what is becoming a crowded smart phone market, but is trying to build an ecosystem, including a developer community, on their own."

"While this is a riskier strategy, they are purchasing a superior mobile OS with Palm and have the potential to develop something significant if they can pull it off," he added.

Owning the OS

Kaufman Bros. analyst Shaw Wu says H-P having its own operating system "gives them more room to differentiate" in the smartphone market.

"At the end of the day, that's what separates Apple and RIM from the rest of the pack -- they have their own operating system," he said.

Meanwhile, analysts say, Dell and Lenovo will likely remain dependent on Microsoft and Google. Sierra Tech analyst Steve Allen speculated that H-P buying Palm may lead Dell to a tighter alliance with Microsoft.

"Let's face it -- those guys are pretty late to the game on smartphones," he said. "I think this will be Dell and Microsoft, two giants in the PC world, trying to figure out, 'How come we're not out there dancing the smartphone market?"

Still, analysts also point out that H-P's success is hardly a foregone conclusion with the Palm deal in a market where Apple and Google are emerging as the big gorillas.

"I'm not sure any of them will succeed," Allen said of companies such as H-P and Dell. "Apple is moving so fast. Google is moving so fast."

Kay agreed, noting the risks H-P faces turning around a company that "went from being the important name in PDAs to being a footnote in smartphones."

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